What can government do to help companies attract investors?

Speaking to a returning Canadian in the pharma industry, I asked him how Canada could improve its innovation. Not surprisingly, he said through investment dollars. He did want government to get out of the way and tax less but seems that theme is not heard. As he says, Government should not be picking the winners and losers. It is too hard for people who do not have industry depth and who are spending tax payers' money, not their own.
Here are more of his comments:

Our
government needs to promote investment so that companies can access some much
needed capital and expertise. On the VC side, for example, the Ontario
government shut down tax credits for venture funds in biotech in the
same year that it launched the Ministry of Research & Innovation,
which effectively directed funds destined for biotech VCs towards
academia.

VC
money is smart, vetted, and accountable, whereas academic grants are not.
Academia is important, but the lack of accountability suggests it is a much
riskier "investment" than similar VC funds going into a company, so
governments should adjust their investment portfolio accordingly to reflect
this risk profile.

On
the growth capital side, small, profitable, companies are often forced
into two paths to access capital: (I) IPO prematurely (at least when
capital markets are healthy) and (II) seek U.S. investors. (I) leads to
management distraction and an agency cost that has the potential to side track
companies that need to focus on building their business rather than appease a
large segment of near-term focused capital market investors. (II) enables
companies to access deep U.S. pockets and expertise, which is great. But
U.S. investors are more likely to move companies to the U.S., especially for
knowledge-based companies, leading to the hollowing out of Canada that seems to
continue. Government can help mitigate the above two fates by
facilitating a stronger Canadian PE industry. I don't know enough
about PE regulation to know how this can be achieved, but
promoting the raising and deployment of capital for the mid-sized
businesses, not just early stage, should be a pressing goal.

On
the flip side, governments do have deep pockets and some mandate for
direct investment to foster critical mass in a given industry (isn't that the
whole point of subsidies?). Government can offer grants to companies
as a form on non-dilutive funding. But I don't think government should be
allocating these funds and the money shouldn't be "free".
Perhaps some kind of process could be developed where companies can access
grants if they can come up with matching funds from investors that ultimately
manage the co-funded investments. Red tape does need to be minimized, or
else the money just goes to the best paper pushers rather than the best
investors.

Finally,
because investors need to share risk on cash-flow positive companies with
lenders, I wonder if there is some kind of mechanism for government to
lubricate this process (but not participate in it). They of course do
this on a macro level with lower interest rates, but perhaps there is something
they can do more specifically to promote investor-lender interaction.

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